Pubradio gets advantage in web streaming
Originally published in Current, April 22, 2002
By Dan OdenwaldProposed music royalties on Internet streaming could force hundreds of commercial webcasters to shut off their services, opening a window of opportunity for public radio on the Internet.
In February, an arbitration panel released guidelines for setting the fees webcasters will pay to stream copyrighted music. Those fees could cost commercial shops as much as $100,000 a year or more. Public radio stations, however, are covered by a CPB agreement negotiated in December that guarantees much lower fees, which CPB will pay for the stations until the end of 2003.
As royalties drive some commercial stations out of the streaming business, the advantage for public radio becomes obvious, says Mark Fuerst, administrative director of the Public Radio Internet Station Alliance (PRISA).
We've seen this before, he argues, when commercial stations abandoned high-quality news and music programming. Public radio stepped in to fill the void—giving rise to the increasingly popular NPR service.
Fuerst says public radio could duplicate the feat with streaming. Listeners want it and public radio has the content.
Even so, the economics of streaming are punishing. Charges for operating the servers that put material on the Web amount to 80 percent of streaming costs, says Tom Lix, president of Public Interactive, a web services company set up by PRI and a group of stations. In streaming, unlike broadcasting, a larger audience means higher costs.
But the price for bandwidth is dropping, and hosting companies are slashing their fees to attract streaming clients. As the business evolves, some pubcasters are predicting a rosier future for streaming—one that doesn't leak dollars in great gushes.
CPB strikes a deal
In the streaming universe, federal copyright law requires webcasters to pay fees not only to songwriters (represented by the ASCAP, BMI and SESAC agencies) but also to artists and their record labels, represented by the Recording Industry Association of America (RIAA).
Debate over the size of the RIAA fees raged until three months ago when a government panel established the rates of .07 of a penny per song per listener for radio simulcasts and 0.14 of a cent for Internet-only webcasts.
The rates established for noncommercial operators were lower: .02 of a penny per song per listener for public stations streaming their signals online and .05 cents for Internet-only webcasts.
In December, CPB struck a deal with music composers and the record labels, agreeing to pay the fees for CPB-qualified stations that stream music. Public stations not eligible for CPB aid and those opting not to sign the agreement must pay the noncommercial fees.
Until the deal was signed, pubcasters had been running up a music copyright bill at rates that had not yet been determined. Digital copyright law allows record labels to charge retroactively for all Internet streaming since 1998. To pubcasters' relief, CPB paid all past fees.
Details of the arrangements are confidential, but it's likely the corporation agreed to pay a flat fee for all copyrighted work until the end of 2003. After that, depending on market forces, the parties will negotiate a new deal, according to CPB.
Commercial webcasters are on their own in paying copyright fees. Some operators could face bills in the tens or hundreds of thousands of dollars, says John Crigler, a communications attorney in Washington, D.C. Hundreds of commercial radio stations are turning off their streams rather than pay for a service that attracts few listeners and little revenue.
The Copyright Office has until May 21 to review the proposed streaming fees before sending them to the Librarian of Congress, who determines the final rates. Webcasters and the RIAA find themselves in yet another pitched battle to determine the total bill.
The National Association of Broadcasters, which represents commercial stations, argues that exorbitant rates will put webcasters out of business; the RIAA argues for higher compensation for its members.
Despite the CPB agreement, most public radio stations continue to agonize over the bruising—albeit decreasing—costs of streaming, Fuerst says. Although copyright fees won't kill the nascent service, it still costs tens of thousands of dollars a year to maintain the infrastructure to provide a service to an audience that doesn't appear to be growing.
Compared with broadcast audiences, Internet listeners are virtually nonexistent, says George Bailey, an audience research analyst for public radio. Only one in four Americans has ever tried Internet radio, he says, and only 5 percent of public radio listeners listen online every week—a number that has remained stagnant since January 2001.
The plummeting cost of bandwidth
While the streaming horizon is "still cloudy," Fuerst says, "it's not getting any darker." Within the past couple of months, the price of bandwidth has seemed to drop.
No one knows if webcasting will ever truly take hold, he contends, but the stations he works with are encouraged by positive trends.
According to Public Interactive, smaller stations—including most public radio stations—are charged about one to three cents per megabyte for streaming of their signals. As stations get larger, the rates decrease, but the total bill goes up because more people listen.
On average, a single listener who listens for one hour consumes slightly less than 9 MB. The cost can range from 9 cents an hour to 27 cents an hour, Lix says.
Because of group buying, Public Interactive has been able to bring prices down so that its average affiliate pays about 6 cents an hour. The rate could drop to 5 cents in the next couple of months, he says.
Some hosting services are cutting their rates to attract streaming stations. WXPN in Philadelphia recently slashed its monthly bandwidth bill from $16,000 to $2,000 by switching hosting companies.
Some stations are moving to peer-to-peer technologies that allow listeners to access streams in use by other listeners, saving bandwidth at the streaming source. These appear to lower costs but are unproven and somewhat unreliable, Lix says.
KPLU in Seattle is experimenting with this peer-to-peer technology, says Kerry Swanson, assistant g.m, but users are required to download a program in order to share bandwidth.
A few lucky stations don't pay for bandwidth at all. Streaming costs for WKSU in Kent, Ohio, are paid for by the state, and KEXP in Seattle has its stream covered by its license-holder, the University of Washington.
Streaming's modest success is a mixed blessing, Lix argues. "We're glad people like it, but it's very expensive."
Turning online listeners into members
Even though streaming costs are decreasing, most public radio stations still lose money doing it. Advertising and e-commerce opportunities—once thought to be the answer to making money on the Web—have flopped.
Most public webcasters agree the business model for streaming is the same as on air: turning listeners into members. If commercial webcasters are forced off the Net, Lix says, then an opportunity may open up for pubcasting.
One of the most popular streaming sites on the Web today is www.beethoven.com. If it were to shut down, Lix argues, a public radio station featuring a classical stream could fill the vacuum. And early studies show that public radio listeners who use the Internet regularly are more likely to become members.
A few pubradio stations are reporting success with turning online listeners into members, Fuerst reports. Stations with very strong brands—such as WXPN, a triple-A station in Philadelphia, and KPLU, a jazz station in Seattle—appeal to a wide and diverse audience on the Web. In those unusual cases, revenue generated from online listening seems to be exceeding the costs of streaming.
WXPN saw its streaming usage skyrocket more than 500 percent between January 2001 to February 2002, says Quyen Shanahan, assistant g.m. Between September and February, the station received nearly $100,000 in contributions from out-of-market listeners.
Though she can't identify where every dollar came from, Shanahan believes revenue from WXPN's webcast is paying for itself.
KPLU webcasts three unique services, including jazz, news and blues streams. The station creates special pledge messages for its jazz stream, some in foreign languages, says Swanson, assistant g.m. KPLU's jazz stream is rated fifth in the world, according to Arbitron Web data.
With members in 50 states and 10 countries, KPLU's online listeners more than pay for the $80,000 a year it costs the station to stream.
Generating mountains of paperwork
The CPB deal isn't cost-free, Crigler notes. Two aspects of digital copyright law irk broadcasters.
Strict record-keeping requirements threaten to bury the smallest of stations in paperwork. Plus, some pubcasters believe playlist restrictions will threaten the sound of their streams. Copyright law forbids webcasters from playing more than three songs from a single album, for example, or more than four songs by the same artist within a three-hour period.
As part of its agreement, CPB negotiated reduced reporting requirements for CPB-qualified licenses along with the reduced rates, but stations will be forced to comply with certain playlist restrictions.
A band of college stations, not covered by the CPB agreement, is rallying against the paperwork, arguing it puts tiny stations with small staffs at a disadvantage.
"The proposed reporting requirements would shut us down," says Will Robedee, g.m. of KTRU at Rice University in Houston. "They're impossible for a volunteer student operation to comply with."
Robedee is seeking special exemptions from reporting requirements for small, nonprofit stations.
Web page posted May 21, 2002
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